The inactivation of molybdenum carbide catalysts by water oxidation is a significant problem in the steam reforming of dimethyl ether (SRD) reaction. In this work, the catalytic performance and stability of molybdenum carbide are greatly improved by ceria modification. Ceria leads to the transformation of methoxy to formate instead of methyl formate, which accelerates the reaction, as identified using in situ diffuse reflectance Fourier-transform infrared spectroscopy (DRIFTS). Moreover, the reactant water is preferentially dissociated on ceria and generates hydroxyl groups instead of being directly dissociated on molybdenum carbide. This reduces the long-time intimate contact of the hydroxyl groups with the molybdenum carbide and protects it from being deactivated by water oxidation. This study not only contributes to the research into molybdenum carbide catalysts for the SRD, but also provides a conceptual approach for overcoming the deactivation of carbide catalysts through oxidation in other similar environments.